But as soon as economies begin to walk the path of recovery, the currency markets will find an overabundance of liquidity. Financial institutions, will meet again in position to generate funding and will want to go out and retrieve their holdings in markets which can generate no doubt a high competence in financial systems. The recovery of the economies will enhance the incentive for credit expansion forming a virtuous circle. This situation undoubtedly will cause a shock on demand with strong momentum inflation will require timely action of law enforcement conduct monetary policy to avoid that the same is realized. How can you avoid is that the inflation risk is transformed into a concrete threat? Recovery of economies may occur not in a slow way, but it can be accelerated as soon as it starts. This will require a rapid response of monetary policy to manage that excess liquidity does not translate into inflationary pressures. The key will pass by putting a brake to the recovery of demand through monetary policy, taking care that it is not excessively restrictive as to slow down the recovery. What you can expect once the economic recovery is that central banks, invalidate the mechanisms of liquidity that have implemented to assist financial institutions in this context of crisis, the cycle of descending rates revert and immediately initiate the cycle of hikes in interest rates with strong movements in the same (although not as abrupt as those observed in interest rates cuts).
At the time, in the last months of 2008, Ben Bernanke had made it clear that with the first signs of recovery in the U.S. economy, the Federal Reserve would initiate a rapid reversal of its cycle of rate cuts to limit the inflationary threat. Also authorities of the European Central Bank (ECB), have expressed concern about the inflationary risk of the current monetary policy, ensuring readiness to act as soon as the context is changed.